UPDATE: Uganda Won't Approve Deal Until Heritage Oil Pays Tax

25th Jul 2010 12:22

(Adds comments from President's office) By Nicholas Bariyo Special to DOW JONES NEWSWIRES KAMPALA, Uganda (Dow Jones)--Uganda's government won't approve the sale of London-listed Heritage Oil PLC's (HOIL.LN) stakes in two exploration blocks in the Lake Albert basin to Tullow Oil PLC (TLW.LN) until Heritage first pays capital gains tax in full, Minister of Energy and Minerals Development Hilary Onek said. The Ugandan government this month conditionally approved the sale of the stakes and appeared to accept Heritage's proposal to deposit some of the capital gains tax in a special account pending arbitration. Onek said the government's position is "either Heritage pays up 30% capital gains tax on the $1.5 billion deal or there is no deal at all." The "government's new position is that Heritage must pay the capital gains tax in full," he said. "We have been rigid on this issue because oil is a national resource and the Ugandan people must benefit from it," he added. The Ugandan government this month approved the sale of Heritage's stake in two oil blocks to Tullow Oil. However, the deal is still conditional upon resolution of a tax issue and could include arbitration in London. People familiar with the situation said the head of the Ugandan tax authority, upon studying the terms of the conditional approval, advised the president earlier this week that Uganda stood to lose out on taxes on the deal should it allow the dispute to go to arbitration. Uganda's President Yoweri Museveni met the U.K.'s Minister for Africa, Henry Bellingham, in Kampala Saturday and complained about attempts to avoid paying the capital gains tax, a Ugandan spokeswoman said in a separate statement. Museveni referred to Heritage's attempts as "begrudging this country of a small fee," she said. According to the president's office, Heritage invested around $130 million in exploration activities in the two blocks and stands to reap huge profits even after paying the capital gains tax. Heritage had previously agreed in June to deposit 30% of the disputed tax sum with the Uganda Revenue Authority and had offered the government the option of arbitration in London. However, according to Onek, the oil production-sharing agreement between the government and Heritage states that tax matters fall under Ugandan law, and that international arbitration wouldn't be appropriate. A Heritage spokesman declined to comment. Heritage said early this month that it had been advised that its plans to dispose off the assets wouldn't attract a capital gains tax. A Tullow spokesman couldn't immediately be reached. Uganda revised its income tax laws in 2008 to introduce a capital gains tax on the disposal of assets following the discovery of commercial oil reserves in three blocks in the Lake Albert basin. -By Nicholas Bariyo, contributing to Dow Jones Newswires; 256-75-2624615; [email protected] (END) Dow Jones Newswires July 25, 2010 07:22 ET (11:22 GMT)